14. Income Taxes

U.S. and international components of loss before income taxes were as follows (in thousands):


	Year Ended April 30,
	2013			2012			2011
U.S.	$	(66,762	)	$	(24,711	)	$	(20,378	)
International		1,863			1,193			882

Loss before income taxes	$	(64,899	)	$	(23,518	)	$	(19,496	)

Income tax expense (benefit) is composed of the following (in thousands):


	Year Ended April 30,
	2013			2012			2011
Current:
Federal	$	—		$	—		$	—
State		956			350			256
International		518			767			233

Total		1,474			1,117			489
Deferred:
Federal		(16,705	)		(7,488	)		(6,183	)
State		9			1			1
International		(90	)		(282	)		72

Total		(16,786	)		(7,769	)		(6,110	)
Change in valuation allowance		14,165			7,463			6,182

Provision for (benefit from) income taxes	$	(1,147	)	$	811		$	561

The difference between the tax expense (benefit) derived by applying the Federal statutory income tax rate to net losses and the expense recognized in the financial statements is as follows (in thousands):


	Year Ended April 30,
	2013			2012			2011
U.S. federal taxes at statutory rate	$	(22,066	)	$	(7,996	)	$	(6,629	)
State tax provision		275			237			152
Foreign tax rate differentials		(185	)		(110	)		(48	)
Research and development credit		(1,198	)		(613	)		(586	)
Non-deductible transaction costs		3,956			—			—
Stock options		3,752			1,448			1,209
Permanent differences and other		154			382			281
Change in valuation allowance		14,165			7,463			6,182

Provision for (benefit from) income taxes	$	(1,147	)	$	811		$	561

As of April 30, 2013, 2012 and 2011, the Company had federal net operating loss carry-forwards of $148.5 million, $49.1 million and $29.3 million and research and development credit carry-forwards of $2.9 million, $1.4 million and $1.0 million, respectively, which will begin expiring in 2026 if not utilized. At April 30, 2013, the Company had $21.9 million of excess stock based compensation tax deductions that have not been used to reduce income taxes payable.

As of April 30, 2013, the Company had state net operating loss carryforwards of $46.2 million, which will begin expiring in 2015 if not utilized, and research and development credits of $0.4 million, which will not expire.

The components of the net deferred tax amounts recognized in the accompanying consolidated balance sheets are (in thousands):


	Year Ended April 30,
	2013			2012
Deferred tax assets:
Bad debts	$	761		$	268
Other accruals		2,158			598
Charitable contributions		216			119
Stock options		3,476			1,520
State tax credit		15			16
Net operating losses		45,309			15,412
Research and development credit		3,169			1,355
Deferred rent		1,045			1,099
Deferred revenue		1,694			1,824

Total deferred tax assets		57,843			22,211
Less valuation allowance		(37,902	)		(19,854	)

Net deferred tax assets		19,941			2,357
Deferred tax liability:
Intangible assets		(16,756	)		—
Depreciation		(3,152	)		(2,116	)

Total deferred tax liability		(19,908	)		(2,116	)

Total net deferred tax assets	$	33		$	241

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of April 30, 2013 and 2012, the Company had net deferred tax assets of $19.9 million and $2.4 million, respectively.

Utilization of the net operating losses and tax credit carry-forwards may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code. The annual limitation may result in the expiration of net operating loss and tax credit carry-forwards before utilization.

The Company has established a valuation allowance equal to the net deferred tax asset in the U.S. due to uncertainties regarding the realization of the deferred tax assets based on the Company’s lack of earnings history. During the year ended April 30, 2013, the Company recorded a tax benefit of $2.5 million resulting from a reduction in the valuation allowance associated with the Longboard Media acquisition. The valuation allowance increased by $18.0 million and $7.5 million during the years ended April 30, 2013 and 2012, respectively.

Deferred U.S. income taxes and foreign withholding taxes are not provided on the undistributed cumulative earnings of foreign subsidiaries because those earnings are considered to be permanently reinvested in those operations. The permanently reinvested undistributed earnings were $3.7 million, $2.7 million and $1.0 million as of April 30, 2013, 2012 and 2011, respectively. The tax impact resulting from a distribution of these earnings would be $1.3 million, $0.9 million and $0.3 million for the years ended April 30, 2013, 2012 and 2011, respectively, based on the U.S. statutory rate of 34 percent.

The Company recognizes interest related to unrecognized tax benefits and penalties as income tax expense. During the years ended April 30, 2013 and 2012, the Company recognized immaterial amounts in interest and penalties, respectively. The Company had an immaterial amount accrued for the payment of interest and penalties as of April 30, 2013 and 2012. The Company does not anticipate a material change in unrecognized tax benefits in the next twelve months.

The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):


	Year Ended April 30,
	2013			2012			2011
Unrecognized tax benefits as of May 1,	$	539		$	369		$	174
Tax positions related to prior periods:
Gross increases		862			9			—
Gross decreases		—			(68	)		—
Tax positions related to current period:
Gross increases		330			232			195
Gross decreases		—			—			—
Lapse of statute of limitations		(2	)		(3	)		—

Balance as of April 30,	$	1,729		$	539		$	369

As of April 30, 2013, the total amount of unrecognized tax benefits, if recognized, that would affect the effective tax rate is $1.6 million.

The Company is subject to taxation in the U.S., various state, and foreign jurisdictions. As of April 30, 2013, the Company’s fiscal years 2005 forward are subject to examination by the U.S. tax authorities and in material state jurisdictions due to loss carry-forwards, and fiscal years 2010 forward are subject to examination in material foreign jurisdictions.